Insights

A Bad Call for Telecom Sourcing - Part II

In the traditional world of auctions, no matter what’s up for bid—art, memorabilia, cars, jewelry—there can only be one winner, one successful bidder. Everyone else in the room is, by definition, a loser.

When it comes to telecom contract negotiations, e-sourcing (AKA reverse auctions) works much the same way with one exception: There is still only one winner, but it’s always the same winner—the telecom providers.

And the reason is simple; the business model itself is flawed for something as complex as enterprise telecom services.

An e-sourcing application doesn’t include benchmark intelligence—the precise industry insight you need to put your telecom service terms into context. An e-sourcing application isn’t designed to include this type of information because it can’t. It has no view into where the industry stands across the entire spectrum of telecom service terms.

Carrier Relationships and Project Leadership

Reverse auctions cannot factor in the types of soft negotiating skills that produce hard results when skilled negotiators apply them. What are they supposed to have, a box you tick off that says, “We’ll go somewhere else if we don’t like your bid.” It doesn’t work that way.

Carrier Processes

Every carrier has its own set of internal processes it uses to develop pricing schemes. Not one of them is going to share those internal guidelines with an e-sourcing application where their competitors can see them.

The telecom carriers understand all too well the leverage they have because migrating to a new service provider is a costly and risky proposition for an enterprise. That leverage effectively means they are not going to provide (or divulge to competitors) their best prices. It dilutes their profit margins in a public arena where they expect to lose more than 90 percent of the time. From their perspective, it’s not worth it. They either won’t submit a bid, thereby decreasing the competitive environment or, they may submit an unsustainably low bid strictly to disrupt the process and if selected, withdraw the bid or tack a flurry of fees onto the contract to recover their losses.

Dialing Back on Reverse Auctions

More than a decade old now, reverse auctions may be successful in some commercial situations but not for telecom services. They are a simple tool unfit for a task as complex as enterprise telecom service negotiations. None of the intangible assets that yield the greatest savings and the best contract terms and conditions are part of an e-sourcing application.

Given the complexity of commercial-grade telecom services and the wide variations between Tier 1, Tier 2, and Tier 3 carriers, a reverse auction tool cannot provide a true apples-to-apples comparison between providers and their bids. There are always factors, terms, and conditions beyond what shows up on your computer monitor during the auction. This makes a productive comparative analysis virtually impossible.

Every carrier has a Special Pricing organization, a strike team, if you will, that has the keys—and the authority—to the carrier’s best pricing packages. No carrier is going to implement that as part of their reverse auction bidding process. They can’t; it takes a team and a whole lot of up-the-chain-of-command approvals to affect that.

Often, a telecom services contract is about more than just price. There are dozens upon dozens of terms and conditions that impact the contract and, in turn, the price. A reverse auction cannot factor in those fine points. Likewise, a reverse auction has no negotiating skills; it cannot communicate to the provider many of the subtleties a skilled negotiator brings to the table, the likes of which add substantial value to the terms you finally settle on with a carrier.

You could try to e-source your next surgery, but even if you could, you probably wouldn’t; there are too many things to consider. You might be able to reverse auction your child’s college education, but you won’t. Too many variables, too much riding on it.

Much like surgery or a four-year investment with long-term consequences, telecom is a vital part of your operation. It’s a critical piece of your infrastructure, plus it’s a fixed line-item in the budget. And like those two endeavors, telecom services aren’t well-suited for something as simplistic as a reverse auction.